How do I invoice clients for mixed taxable and non-taxable items in the US?

Understanding mixed taxable and non-taxable invoicing in the US

When you sell a combination of taxable and non-taxable items on the same invoice, the goal is simple: present a clear, defensible breakdown that matches how US sales tax works in the real world. In practice, though, mixed invoices can get confusing fast—especially when you add shipping, discounts, bundles, tips, service labor, digital products, exemptions, and customers in different states.

This guide walks you through how to invoice clients for mixed taxable and non-taxable items in the United States in a way that is clear to customers, easy to reconcile, and strong enough to hold up if you ever need to explain your numbers. You’ll learn how to structure line items, apply tax at the right level, handle discounts and shipping correctly, and avoid common mistakes. The examples are written to be app-friendly and to map cleanly to modern invoicing workflows like those in invoice24.

First, know what “taxable” means (and why it varies by state)

Sales tax in the US is not one single national rule. Sales tax is mainly administered at the state level, and in many places local jurisdictions also add rules and rates. That means whether something is taxable often depends on:

1) The state (and sometimes city/county) where the sale is sourced

2) The type of product or service

3) Who the buyer is (consumer vs reseller vs exempt organization)

4) Whether the buyer has a valid exemption certificate

5) Whether the transaction includes delivery/shipping or installation

For example, many states tax tangible personal property (physical goods) but treat some services as non-taxable. Some states tax digital products heavily; others tax very little in that category. Grocery food, clothing, and medical supplies can be fully taxable, partially taxable, or exempt depending on the state. Because of this, you should treat “taxable vs non-taxable” as a setting you apply per line item based on your jurisdiction and your product/service type—not as a one-time business-wide assumption.

Start with the foundational rule: tax is calculated from the invoice’s line-level reality

When you invoice mixed items, the best practice is to structure the invoice so each item’s taxability is visible and consistent. Instead of thinking “this invoice is taxable” or “this invoice is non-taxable,” think:

• Each line item has a taxability status (taxable or non-taxable, sometimes with a specific tax category)

• The tax rate is applied only to the taxable base

• The invoice total is the sum of: non-taxable subtotal + taxable subtotal + tax amount

This line-level approach matters for two reasons. First, customers can understand what they’re being taxed on, which reduces disputes and delayed payments. Second, it helps you produce accurate reporting, because your taxable sales and exempt/non-taxable sales should be separable without detective work.

Invoice structure that works for mixed taxability

A clean mixed-tax invoice typically includes:

• A line-item table with: description, quantity, unit price, line total

• A tax indicator per line (for example: “Taxable” or “Non-taxable”)

• A subtotal section split into taxable and non-taxable amounts (optional but highly recommended)

• A tax line showing rate and tax collected

• A grand total

If your invoice format only shows one subtotal, you can still do this correctly, but clarity improves when the totals section shows how the base was formed. In invoice24, you can label each item as taxable or non-taxable and let the system calculate tax only on the taxable items, ensuring the final amounts reconcile automatically.

Step-by-step: how to invoice mixed taxable and non-taxable items

Step 1: Identify the “tax location” rules for the sale

Before you select taxable/non-taxable for items, you need to know which state’s rules apply and what rate is relevant. Many sellers use the customer’s “ship-to” address for physical goods. Services may be sourced differently, and some states use destination-based sourcing while others may use origin-based rules for certain sellers. This can get complex, but the invoicing workflow remains consistent: you choose the correct jurisdiction, then apply the correct taxability and rates.

Practical invoicing tip: always capture the customer’s full address on the invoice, including the delivery address if it differs from billing. Even if the customer is paying remotely, the destination address often drives tax treatment for goods.

Step 2: Itemize everything (avoid lump-sum descriptions)

Mixed taxability is hardest when you put multiple things into one line like “Project work – $5,000.” If that $5,000 includes taxable deliverables (like custom printed materials) plus non-taxable services (like consulting), you’ve created ambiguity. Itemization removes that ambiguity.

Instead, break the invoice into lines such as:

• Consulting services (non-taxable in many states)

• Printed brochures (taxable in many states)

• Design labor (sometimes taxable, sometimes not, depending on state and whether it’s part of a taxable end product)

Even if your client agreement uses a single project price, you can still itemize on the invoice for tax accuracy. This is especially useful if you ever need to explain why tax was charged on only part of the invoice.

Step 3: Mark each line as taxable or non-taxable

Once items are separated, assign taxability per line. This sounds simple, but it’s where most mistakes happen. A few reminders:

• Don’t assume “services are non-taxable.” Some states tax many services, especially repair, installation, personal services, and certain digital services.

• Don’t assume “shipping is non-taxable.” In some states, shipping becomes taxable when it’s tied to taxable goods or not separately stated.

• Don’t assume “digital is non-taxable.” Many states tax software, downloads, streaming, and electronically delivered products.

In invoice24, treat taxability as a per-item attribute. If you sell recurring packages, set up your common items in a catalog with default tax status so you don’t have to remember it every time.

Step 4: Apply the correct tax rate to taxable lines only

After marking taxable lines, apply the correct sales tax rate for the customer’s location and the product type when relevant. Many jurisdictions have a “general rate,” but some items can have special treatment (reduced rates, exemptions, or local add-ons). For invoicing purposes, you should ensure your invoice shows:

• The taxable amount (the base subject to tax)

• The rate used (as a percentage)

• The tax calculated (amount collected)

Example: If you have $1,000 in taxable goods and $2,000 in non-taxable services, and the combined rate is 8.25%, the tax should be $82.50 (8.25% of $1,000), not $247.50.

Step 5: Decide how to display tax breakdowns for clarity

You can make mixed-tax invoices clearer by displaying a short tax summary section. For example:

• Non-taxable subtotal: $2,000.00

• Taxable subtotal: $1,000.00

• Sales tax (8.25%): $82.50

• Total: $3,082.50

This isn’t always legally required, but it reduces payment friction because the client sees why tax was applied and to what.

Common scenarios and how to invoice them correctly

Scenario 1: Consulting services plus physical deliverables

Let’s say you provide marketing consulting (often non-taxable) and also deliver printed posters (often taxable). A good invoice layout would include two separate lines:

• Marketing consulting services – 10 hours @ $150/hr – $1,500.00 – Non-taxable

• Printed posters – 50 units @ $12/unit – $600.00 – Taxable

Tax is calculated on $600 only. In the totals, show taxable and non-taxable subtotals so the customer understands the difference.

Scenario 2: Labor and parts in repairs

In many states, repair services may be taxable, or the parts may be taxable even if labor is not. To invoice properly:

• Replacement parts – itemize each part (usually taxable)

• Labor – itemize hours and rate (may be taxable or non-taxable depending on state)

Separating parts and labor makes it easier to apply state rules and to explain charges to the customer.

Scenario 3: Bundles and packages that contain taxable and non-taxable elements

Bundles are tricky because taxability can depend on whether the bundle is sold for one non-itemized price or as separately stated components. A safer approach is to list the bundle components clearly and assign taxability to each.

If you must charge a single price for the bundle, consider breaking it into “bundle components” lines that sum to the same total. This creates a transparent taxable base. Just make sure the breakdown is consistent with your pricing policy and not a random allocation that could look artificial.

Scenario 4: Memberships and subscriptions with mixed benefits

A subscription might include access to a digital product (sometimes taxable) plus consulting calls (often non-taxable) plus physical welcome kits (often taxable). Invoice the components or, if it’s a single subscription line, understand that some states may treat the entire membership as taxable if any taxable component is included and not separately stated.

Practical approach: list separate recurring lines when possible. For example:

• Software subscription – $99/mo – Taxable in many states

• Support/consulting retainer – $200/mo – Often non-taxable

That structure keeps tax confined to the taxable part, if your state rules allow separation.

Shipping, delivery, and handling: the most common mixed-invoice trap

Shipping charges frequently appear on mixed invoices and often cause accidental over- or under-collection. The key invoicing principle is: always list shipping as its own line, and apply tax to it only when required by the destination rules.

Here are practical guidelines that improve accuracy:

• Always state shipping separately on the invoice rather than burying it in the price of goods.

• If you sell both taxable and non-taxable goods on the same shipment, some jurisdictions require prorating shipping taxability based on the taxable portion of the goods.

• If shipping is optional and separately stated, it may be treated differently than mandatory delivery charges.

In invoice24, create a “Shipping” line item and mark it taxable or non-taxable according to your jurisdiction’s rule. If you need to prorate, you can split shipping into two lines (taxable shipping and non-taxable shipping) with allocated amounts, so the tax calculation stays clean.

Discounts, coupons, and promotions on mixed invoices

Discounts can change your taxable base. The big question is: does the discount reduce taxable lines, non-taxable lines, or both?

For a mixed invoice, the cleanest approach is to apply discounts at the line-item level when possible. That way:

• Taxable lines get discounted, reducing taxable base and tax owed

• Non-taxable lines get discounted, reducing the non-taxable subtotal

• The customer sees exactly where the discount applied

If you apply a single global discount across the whole invoice, you may need to allocate it proportionally between taxable and non-taxable items so tax isn’t overstated. Example:

• Taxable items: $200

• Non-taxable items: $300

• Total before discount: $500

• Global discount: $50 (10%)

In many cases, you’d reduce taxable base by 10% and non-taxable base by 10% as well. The invoice then calculates tax on $180 instead of $200.

In invoice24, you can handle this by either applying discounts directly to each line or using a discount line and setting up allocation logic in your workflow (for example, reducing each line proportionally). The critical outcome is that the taxable base should reflect the discount fairly.

Exempt customers and resale certificates

Some customers are exempt from sales tax in certain states—common examples include resellers buying for resale, certain nonprofit organizations, and government entities. If the customer is exempt, you still should invoice properly:

• Itemize as usual

• Mark items taxable/non-taxable normally (because the nature of the item still matters)

• Apply an exemption so tax is not charged where the exemption applies

• Record the exemption certificate or reason internally

On the invoice, it is helpful to show a simple note such as “Sales tax not charged due to exemption” and optionally reference the exemption type (for example, resale). Avoid placing sensitive document details on the invoice itself; store those in your records.

When you should add a brief “tax note” on the invoice

Mixed invoices benefit from a short note in these situations:

• The customer is exempt and you are not charging tax

• You are taxing shipping or a service that customers often assume is non-taxable

• You are prorating tax (for example, shipping partially taxable)

• Your invoice includes out-of-state delivery and the customer may be surprised by destination-based tax

Keep notes short and plain-language. For example:

“Sales tax applies to taxable goods only; consulting services are not taxed on this invoice.”

Or:

Short notes reduce back-and-forth and can speed up payment.

What to do when one line item has multiple tax rates

Some invoices need different tax rates for different items. This can happen when:

• You sell items with special tax treatment

• Local jurisdictions apply different rates

• You deliver to multiple locations on one invoice (less common, but possible)

The safest invoicing approach is to avoid “mixed-rate” lines. Split them. For example, instead of “Software and training – $1,000,” use two lines with their own tax treatment. If you are shipping to multiple addresses, consider issuing separate invoices per destination so the tax jurisdiction is unambiguous.

Service-heavy businesses: mixed invoices for labor, materials, and reimbursable expenses

If you run a service business—consulting, creative services, installation, repair, contracting—you’ll often bill:

• Professional services (may be non-taxable)

• Materials (often taxable)

• Reimbursable expenses (taxability varies)

A reliable structure is:

1) Services as their own lines (hours, rate, description)

2) Materials/parts as their own lines (quantity, unit price)

3) Expenses as separate lines (mileage, travel, permits, shipping, third-party costs)

Then mark each line’s tax status. This structure also makes it easier for the client to approve and pay, because it mirrors how they budget: labor vs materials vs expenses.

Digital goods and SaaS: how to handle mixed invoices with physical goods or services

Many modern businesses sell a mix of digital and physical items: a software subscription plus a hardware device, or an online course plus coaching sessions, or a digital download plus printed workbook. The same line-level principles apply, but pay attention to two things:

• Digital taxability differs greatly by state

• Bundles that include taxable physical goods may cause the entire charge to be treated as taxable if not separated

To stay clear and consistent, list digital and physical deliverables separately whenever possible. If you provide coaching calls alongside a digital course, list the coaching as a separate service line. This improves clarity and helps ensure you only collect tax where required.

How to set up your item catalog for faster, safer invoicing

The easiest way to avoid mistakes is to build a repeatable catalog of products and services with default tax settings. That way, you don’t re-decide taxability every time you invoice. A good catalog setup includes:

• Standardized item names (so you don’t create duplicates like “Consulting” vs “Consultation”)

• A default tax status per item (taxable or non-taxable)

• Optional notes that describe the tax treatment logic (for your internal use)

• Standard units (hour, each, package, month)

In invoice24, you can store these items and reuse them across invoices. The advantage is consistency: if “Printed materials” is always marked taxable and “Consulting services” is always marked non-taxable in your system, you reduce errors that come from rushing.

Practical examples with totals

Example A: Web design project with taxable add-ons

Lines:

• Web design services – $2,500.00 – Non-taxable (in many states)

• Printed brand guide – $200.00 – Taxable

• Shipping – $20.00 – Taxable or non-taxable depending on rules (assume taxable here)

Totals:

• Non-taxable subtotal: $2,500.00

• Taxable subtotal: $220.00

• Sales tax (8%): $17.60

• Total: $2,737.60

Notice how the tax applies only to the taxable base ($220), not to the services.

Example B: Repair invoice with parts and labor

Lines:

• Replacement motor – $180.00 – Taxable

• Installation labor – 2 hours @ $90/hr – $180.00 – Taxable or non-taxable depending on state (assume non-taxable here)

Totals:

• Non-taxable subtotal: $180.00

• Taxable subtotal: $180.00

• Sales tax (7.25%): $13.05

• Total: $373.05

This is easy to explain to customers because they see parts and labor separately.

Example C: Subscription plus onboarding services

Lines:

• SaaS subscription (monthly) – $99.00 – Taxable in some states (assume taxable)

• Onboarding session – $250.00 – Non-taxable in many states

Totals:

• Non-taxable subtotal: $250.00

• Taxable subtotal: $99.00

• Sales tax (6.5%): $6.44 (rounded)

• Total: $355.44

Because the items are separated, your invoice remains accurate regardless of whether the service portion is taxed in a given state.

Rounding and “pennies off” problems

Mixed invoices can produce small rounding differences, especially when you have many line items or when you calculate tax per line versus on the subtotal. To reduce confusion:

• Use a consistent method across all invoices

• Prefer the method your invoicing system uses by default

• If you must match a customer’s procurement system, ask whether they compute tax per line or per taxable subtotal

In many real-world scenarios, the difference is only a cent or two. What matters is consistency and the ability to explain your method if needed.

Recordkeeping: what to store behind the scenes

The invoice is what the customer sees, but your internal records are what protect you. For mixed taxable/non-taxable invoicing, keep:

• A copy of each invoice

• The customer’s full address and delivery address

• The tax rate applied and effective jurisdiction

• Notes about exemptions (and exemption documents where applicable)

• Product/service descriptions that match what you sold

If your business is ever asked to explain a tax figure, the ability to show the taxable base and the items included is incredibly valuable.

Mistakes to avoid on mixed-tax invoices

1) Taxing the entire invoice total by default

This is the classic error: you have one taxable item, then your system taxes everything. The fix is line-level tax settings and a tax calculation that uses only taxable lines.

2) Hiding taxable goods inside a service line

If you bill “Consulting package” but deliver taxable printed materials or products, you can accidentally under-collect. Itemize goods separately.

3) Treating shipping the same way in every state

Shipping rules vary widely. Always list shipping separately and apply tax according to the destination’s rules and your product mix.

4) Applying a global discount without adjusting taxable base

If discounts reduce the price, they often reduce the taxable base too. Applying tax to pre-discount amounts can overcharge customers and create accounting headaches.

5) Not documenting exemptions

If you don’t charge tax due to exemption, you should be able to show why. Keep certificates or supporting documentation on file.

6) Combining multiple delivery locations on one invoice

If you ship to different states or jurisdictions, you may need different tax treatments. Separate invoices per destination can reduce risk and confusion.

How invoice24 can help you invoice mixed taxable and non-taxable items cleanly

Mixed invoices become straightforward when your invoicing process is built around line items and clear tax settings. A workflow that works well is:

• Add each product/service as its own line item

• Mark the taxability per item (taxable or non-taxable)

• Apply the appropriate sales tax rate for the customer’s location

• Review the taxable subtotal before sending

• Send an invoice that shows transparent totals

Because invoice24 supports itemized invoices, tax settings, discounts, shipping lines, and clear totals, you can generate invoices that are easy for clients to understand and easy for you to reconcile. The point isn’t to make invoices look complicated—it’s to make them accurate while still being readable.

A simple checklist before you send a mixed-tax invoice

Use this quick checklist to catch most errors:

• Did I itemize goods, services, and shipping separately?

• Is each line correctly marked taxable or non-taxable?

• Does the tax apply only to the taxable subtotal?

• Are discounts reflected in the taxable base where appropriate?

• If the customer is exempt, do I have documentation on file?

• Does the invoice show enough clarity to explain the tax to the customer?

If you can answer “yes” to each, you are in a strong position.

Final thoughts: clarity and consistency beat complexity

Invoicing mixed taxable and non-taxable items in the US is less about memorizing every rule and more about building an invoice structure that can handle variation. When you itemize, mark taxability per line, apply tax only to the taxable base, and keep good records, you’ll avoid most of the costly mistakes that cause disputes or compliance issues.

Clients appreciate invoices that are easy to understand. You appreciate invoices that reconcile cleanly. And if your business ever needs to explain its sales tax collection, a line-item, mixed-tax invoice is the simplest story to tell: here’s what was taxable, here’s what wasn’t, and here’s exactly how the tax was calculated.

With a consistent process—and a tool like invoice24 that supports item-level tax treatment—you can confidently invoice mixed taxable and non-taxable items while keeping your billing professional, accurate, and fast.